Riassunto di Sustainable Operations Management (SOM)

A typological approach

Operations management (OM) refers to the design, operation, and improvement of the systems that create and deliver the firm's primary products and services. It is concerned with the management of the physical resources required for production. Employees in the operations area outnumber those in other areas, with a large proportion of total spending consumed in the operations area.

Sustainability and sustainable development

Sustainable development (SD) is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. There are issues of equality in terms of time and space. SD means adopting strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting the resources needed in the future.

Corporate Social Responsibility (CSR) involves companies integrating social and environmental concerns into their business operations on a voluntary basis. SD can be regarded as the normative societal concept behind corporate sustainability (CS) as the corporate concept and CSR as the management approach.

LCA (Life Cycle Analysis) covers the efficient use of resources at each stage of the process:

• Design and preproduction
• Production/manufacture
• Packaging and distribution
• Use
• Recycling/remanufacturing/disposal

Triple bottom line (revised)

• Environmental sustainability: Financial performance, resource efficiency, health, safety, and social conditions for employees, future competitiveness, emissions and waste streams, equity within the company, environmental damage and relations with stakeholders, economic impact on stakeholders.
• Economic sustainability: Choice of technology, intergenerational equity, carbon neutrality. If firms don’t reach the goal of zero emissions, they have to buy offsets for the remaining emissions.
• Social sustainability: Health, safety, social conditions for employees, equity within the company, relations with stakeholders.

Propositions regarding carbon neutrality:

• Overall organization performance toward carbon neutrality is higher if all three dimensions of the triple bottom line are emphasized.
• Overall organization performance toward carbon neutrality is more likely for manufacturers of finished products and service operations than for firms further back in the supply chain.
• Independent of position in the supply chain/value chain, overall organization performance toward carbon neutrality is higher if firms seek absolute reductions in greenhouse gas emissions before purchasing offsets.
• An industry supply chain could achieve carbon neutrality if the price received per kg of material in the final product exceeds the cost of transformation from raw material by a sufficient margin to purchase enough offsets for all emissions for all stages of the product life cycle.

Sustainability and future trends

Daily production is 2800 calories vs. the daily requirement of 2550 calories. 870 million people are hit by malnutrition, with 852 million in developing countries (36 million die every year). There are 1.1 billion undernourished and 1.5 billion obese/overweight people (30 million die every year). By 2050, the population will reach 9 billion on Earth (+30%), requiring an extension of agro-food production. Agriculture is responsible for 75% of the water consumption destined for food production and 33% of global greenhouse gas production.

Arable land will be reduced by 8%-20% due to climate change, leading to forests being converted into farmlands. 70% of farm irrigation and current freshwater withdrawals are divided into 22% industry and 8% domestic consumption. 33% of global food production (1.3 billion tons per year) is wasted during conservation, transformation, distribution, and consumption processes. Food losses occur upstream, mainly in developing countries due to limits in the cultivation techniques, while food waste is related to consumer behavior, mainly in industrialized countries.

Europe and the USA consume twice their nutritional requirement and waste half of the food. Food dumped in industrialized countries amounts to 222 million tons, compared to 230 million tons of food produced in sub-Saharan Africa.

Megatrends and sustainability

Megatrend: A general shift in thinking or approach affecting countries, industries, and organizations.

Demographic evolution

The current population consumes resources equivalent to 1.5 planets per year (2 by 2030, 3 by 2050). The population of people over 60 will rise from 510 million in 2011 to 1.6 billion by 2050. People over 65 will double to 1 million by 2030. These phenomena will increase the sustainability of public spending in Europe. In the Far East countries, the young population will grow. Demographics alone explain 60% of GDP growth and 40% of labor productivity growth.

Urbanization

Today, more than 50% of the global population lives in cities (60% by 2030, 70% by 2050). Mega-cities, with more than 10 million inhabitants (e.g., Tokyo, Istanbul, London, Paris, Shanghai), will exceed 35 by 2025, mostly in developing countries, remaining small in old Europe. Mega-regions, with more than 15 million inhabitants (e.g., São Paulo, Rio de Janeiro), exist in Europe as high population density areas producing wealth, comparable to mega-regions (e.g., Amsterdam-Rotterdam, Milano-Roma-Torino). Mega-corridors will connect mega-cities and/or mega-regions (e.g., Mumbai-Delhi).

Emerging new consumers

Developing countries are rising (Asia, Africa, and Eastern Europe), leading to a new class of consumers with growing discretionary spending but different needs from Western Europe’s consumers. It's necessary to adopt lower-cost business models.

• 260 million new middle-class households
• 40 million new upper middle-class households (40% from Eastern Europe, 20% from China)
• Growth rate of 8% in 10 years
• Annual income from 3200 (lower middle-class) to 4400 (upper-middle class)
• 62% of India’s population will fall into these categories by 2020
• China’s population in this category was 65 million in 2005 and it will be 949 million by 2020
• Russia’s population in this category +140 million

Rethinking products and processes to adapt them to low-income markets leads to economic sustainability only if high market penetration is reached. Sometimes, distribution costs in rural areas are too high and may counterbalance the margins generated by economies of scale. There are several options for supply and distribution strategies:

• The company has a pre-existing logistics infrastructure: low margins + high volumes, no costs to teach consumers to use the products.
• The company has to develop distribution logistics in rural areas: it's necessary to teach consumers to use the products; a strategy based on 3 elements is necessary to raise prices and margins. Localizing and bundling base products create products that can reduce CVo through postponement + increasing prices through a richer value proposition. The final processing prior to sale is as close as possible to the market (e.g., packaging). It involves proposing a sales bundle, offering more products/services in a single purchase, saving the consumer time and money. Offering an enabling service gives customers the knowledge and skills needed to maximize product features. Cultivating customer peer groups reduces communication and teaching costs related to the use of the products. This policy allows low-cost widespread market penetration based on direct contact among users (e.g., Hill).

Smart technologies, big data, and connectivity

A smart product is one with an incorporated form of intelligence made up of microprocessors allowing them to connect to other devices. The demand for connectivity and integration is rising, rendering the boundaries between competition and cooperation faint and stimulating the convergence of industries, leading to the democratization of information through collaborative platforms and knowledge-sharing.

Megatrends and supply chain management

Demographic growth and concentration in mega-cities lead to an increase in the demand for goods and services. The environmental impact due to population growth may be softened thanks to the development of clean technologies and the issue of new environmental standards by supranational regulatory bodies. This will lead to new methods for measuring the value created through the identification of metrics and KPIs capable of rating economic, social, and environmental performances.

New generations

New generations, like the Z generations/digital natives, will benefit from new opportunities offered by connectivity, enabling alternative forms of employment. The increased sensitivity of new generations towards sustainability will lead to an increase in low-impact urban mobility initiatives (e.g., Mini electric cars, car-sharing, consumption of green products).

The development of sustainable objectives from the triple bottom line perspective

Sustainability objectives refer to three performance levels – 3P:

• Profit: Economic and financial sustainability and its development prospects in the long term.
• Planet: Environmental protection and the impact of the business on the environment.
• People: Social equity and cohesion, economic prosperity, and the protection and promotion of fundamental rights.

A deep-rooted vision in several business contexts may contrast with these objectives, presuming that the maximization of profit may justify paying less attention to environmental and social sustainability. This trade-off must be rejected.

Profit + Planet + People lead to sustainability:

• In space: Better distribution of the value created.
• In time: Need to guarantee intergenerational equity, offering future generations the same opportunities that are offered to those of today’s generations.

SLDI Code sustainable development matrix (Moxk and Wernke, 2011)

Each component is developed according to a series of guiding principles aimed at balancing the elements of Utility, Efficiency, and Effectiveness.

Profit

• Create value
• Eliminate waste
• Recognize interdependence by including all stakeholders with a variety of interests and by expanding the scope of interest to include neighboring communities and government. Projects teams are on the way toward achieving optimal economic and environmental returns on investments: there is no economic capital without preserving and maximizing environmental and social capital.

Planet

• Model nature: All sustainable technology and intelligence necessary can be found by understanding and modeling our natural biological systems through the study of nature’s best ideas and imitating them to solve human problems. Connecting projects to nature equals success from an environmental, social, and economic context.
• Energy flows: Minimizing the amount of non-renewable energy and pollutants.
• Humans and nature coexist: By incorporating natural principles and practices, projects can deliver a sustainable imprint that has a lower impact. For a sustainable future, humans must effectively integrate with nature.

People

• Accept responsibility by adhering to a decision model that maximizes economic results, minimizes environmental impact, restores degraded ecosystems, and maximizes the quality of life.
• Quality of life: Focusing on innovative ways to meet stakeholders' quality-of-life needs.
• Share knowledge.

Sustainability: The reasons why

• Financial payoffs: Reducing costs + increasing return and market appreciation.
• Consumer-related payoffs: Increasing customer satisfaction, reputation, and market share.
• Operational payoffs: Process innovation aimed at increasing productivity and the yield of the used resources, reducing process times and minimizing waste.
• Organizational payoffs: Increasing employee satisfaction, better relationship with stakeholders, reducing risk and interventions of regulatory bodies, and increasing organizational learning.

The drivers that lead a company to increase its compliance with the principles of sustainability differ for:

• Legal reasons: In many contexts, laws and regulations impose consistent behavior and sanction elusive/illegal behavior are drawn up.
• Compliance reasons with regard to specific certifications and accreditations: The choice to adapt behavior and internal processes to the regulations may be due to competitive opportunities, to obtain licenses in order to set up business in certain areas; in other cases, it may be due to communication purposes, to improve quality or recover efficiency.
• Reasons connected to relationships: To maintain a high level of reputation, the management may be forced to set up sustainability projects.
• Reasons linked to profitability opportunities (e.g., investments in clean technologies).